4.18 CALCULATING AND INTERPRETING ACCOUNTS RECEIVABLEAND INVENTORY TURNOVER RATIOS. Nucor and AK Steel are steel manufac- turers. Nucor produces steel in mini-mills. Mini-mills transform scrap ferrous metals into standard sizes of rolled steel, which Nucor then sells to steel service centers and distribu- tors. Its steel falls on the lower end in terms of quality (strength and durability). AK Steel is an integrated steel producer, transforming ferrous metals into rolled steel and then into various steel products for the automobile, appliance, construction, and other industries. Its steel falls on the higher end in terms of quality. Exhibit 4.24 sets forth various data for these two companies for 2007 and 2008.

Required

a. Calculate the accounts receivable turnovers for Nucor and AK Steel for 2007 and 2008.

b. Describe the likely reasons for the differences in the accounts receivable turnovers for these two firms.

c. Describe the likely reasons for the trend in the accounts receivable turnovers of these two firms during the two-year period.

d. Calculate the inventory turnovers for Nucor and AK Steel for 2007 and 2008.

2008 2007

Nucor

Sales

$23,663

$16,593

Cost of Goods Sold

19,612

13,035

Average Accounts Receivable

1,420

1,340

Average Inventories

Change in Sales from Previous Year

2,005

+42.6%

1,371

+12.5%

AK Steel

Sales

$ 7,644

$ 7,003

Cost of Goods Sold

6,479

5,904

Average Accounts Receivable

572

686

Average Inventories

Change in Sales from Previous Year

607

+9.2%

752

+15.3%

e. Describe the likely reasons for the differences in the inventory turnovers of these two firms.

f. Describe the likely reasons for the trend in the inventory turnovers of these two firms during the two-year period.

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